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Chile's Clean Energy Future: Biomass, Biogas, Geothermal

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Chile's Clean Energy Future: Biomass, Biogas, Geothermal NRDC: Chile’s Clean Energy Future - Biomass, Biogas, Geothermal, Small Hydro, and Wind are Affordable Choices Now and Solar is Not Far Behind (PDF) chile FActS © www.flickr.com/internationalrivers Chile’s Clean Energy Future: Biomass, Biogas, Geothermal, Small Hydro, and Wind are Affordable Choices Now and Solar is Not Far Behind Chile is in the middle of an important national debate about its energy future. Concerns about lack of a secure energy supply, volatile prices, and the environmental and health risks related to fossil fuels and nuclear energy are front and center for citizens, government, business, and industry. The overarching question is: what should be the focus of a new energy policy to increase energy security and independence and support future growth and development? To help answer this question, the Natural Resources Defense Council (NRDC) commissioned an assessment of the comparative costs of a wide range of generation technologies in the Chilean power sector. The main conclusion to draw from this research is that Chile’s traditional energy choices are not necessarily the most secure or most affordable options for the future. Chile can meet its demand in the coming decades through a variety of “non-conventional renewable energy” (NCRE) sources and energy efficiency technologies supplementing its existing generation base. But this will only be possible if Chile strengthens its renewable energy and energy efficiency policies to remove existing barriers and more effectively promote these sectors. chAlleNgiNg the coNveNtioNAl WiSDoM Based on the analysis and a large body of evidence that ABout the coStS oF NcRe iN chile energy efficiency is the cheapest energy resource, it is clear NRDC commissioned Bloomberg New Energy Finance that with appropriate domestic market development NCREs (BNEF) to prepare an assessment, with Chilean data provided can rapidly become even more affordable.1 This finding is by Valgesta Energía (Valgesta), of the “levelised cost of critically important as Chile considers betting its future on energy” (LCOE) comparing a wide range of power generation new megaprojects such as the HidroAysén hydroelectric technologies in Chile. The analysis demonstrates that “non- complex with its attendant harm to ecosystems and conventional renewable energy” (NCRE) technologies, which communities and the Castilla coal-fired plant that would are often assumed to be uniformly more costly, actually bring significant concerns about fuel risks and air and provide affordable choices right now. water pollution. For more Douglass Sims Amanda Maxwell to read the full report information, [email protected] [email protected] prepared by BNeF please visit please (212) 727-4518 (202) 289-2368 www.nrdc.org/international/ contact: switchboard.nrdc.org/ switchboard.nrdc.org/ chilecostofenergy.asp blogs/dsims blogs/amaxwell www.nrdc.org/policy www.facebook.com/nrdc.org www.twitter.com/nrdc uNDeRStANDiNg the “leveliSeD coSt oF eNeRgy” Energy generation technologies have different cost and performance characteristics that can be difficult to compare. For example, the “fuel” for photovoltaic plants—sunlight—is free, but unless combined with energy storage, photovoltaic plants can only provide energy when the sun is shining. Fossil-fueled thermal power plants, by contrast, can produce energy at all hours as long as fuel is available, but have often volatile fuel costs, unpredictable outages for repair, high operating costs, and cause negative environmental and health effects that solar and other NCRE technologies generally do not. Large hydro facilities often have low fuel and energy production costs, but frequently experience huge cost overruns during construction, incur high long distance transmission costs, can harm ecosystems and local communities, and are vulnerable to water shortages and seismic risks. The “levelised cost of energy” financial model accounts for such differences by converting these various characteristics © www.flickr.com/jennieb of each technology (other than environmental, social and health impacts) into a single metric: the price of a standard This analysis compares the levelised cost of energy for unit of energy known as a megawatt hour (MWh). This price Chile’s primary energy sources of large hydro, coal, gas, indicates the amount of money that the owner of a power and diesel as well NCRE sources such as small hydro, plant would have to charge the buyer of such energy to geothermal, biomass, biogas, wind, solar photovoltaic (PV), recoup its costs and earn a profit (assumed to be 10 percent and solar thermal. By looking at data for the year 2011 for this analysis). By comparing energy generation sources and then making projections about the relative costs of head-to-head, Chileans can identify the resources that can electricity production in 2020 and 2030, the analysis provides compose the most economical portfolio of resources to meet information to steer development of a portfolio of low-risk, Chile’s energy demand. low-cost energy to meet Chile’s rising demand. The Case for Non-Conventional Renewable Energy Around the world, and especially in Organization for Economic Co-operation and Development (OECD) countries such as Chile, governments, citizens, and businesses are concluding—based on decades of hard-won experience—that there is little security in relying on fossil fuels for energy. Fossil fuel supplies are limited and are subject to political and economic forces that no single country can control. The human health, environmental, and climate costs of burning fossil fuels are also high. The only known way to lower the carbon released when coal or gas is consumed is through technology designed to capture and store carbon. While proven to be technically feasible in places with suitable geological formations for storage, it remains uneconomical without regulations that increase the costs of carbon emissions or subsidies for developing the new technology. Beyond fossil fuels, nuclear energy and large hydro have been the most frequently discussed alternatives in Chile. Nuclear energy, already estimated to be expensive and risky in Chile, is being reevaluated in the wake of the ongoing tragic events in Japan that began in March 2011. Most OECD countries are also moving away from large dams due to their ecosystem disruptions and concerns about water supply due to changing climate patterns. Chile faces cyclical droughts, high transmission costs to access distant water resources, and seismic risks as additional concerns. The HidroAysén large hydroelectric complex proposed in Patagonia, for example, would put pristine ecosystems in jeopardy, endanger lives and livelihoods, and concentrate a dangerously large portion of central Chile’s energy supply at end of a 2000 kilometer transmission line. Fortunately, Chile has an array of non-conventional renewable energy and energy efficiency options to meet its energy demand without incurring the insecurities, risks, and harm that come with fossil fuel, nuclear, and large hydro projects. PAGE 2 | NRDc Chile’s Clean Energy Future Figure 1.1: 2011 chile levelised cost of energy Diesel utility scale Today, on an LCOE basis, a wide range of PV cSi commercial non-conventional renewable energy (NCRE) cPV two axis tracking utility scale technologies, including biogas/landfill gas, small hydro, biomass, onshore wind, and PV cSi utility scale geothermal are competitive with the new build STEG tower + heliostat utility scale cost of Chile’s mainstay energy sources of large STEG trough utility scale hydro, natural gas, and coal. Geothermal binary utility scale Energy prices are from CNE data and calculated Coal utility scale as the average of the first quarter of 2011 and the last three quarters of 2010. CCGT utility scale Geothermal flash utility scale Wind onshore utility scale Biomass all feedstocks utility scale Large Hydro utility scale Large Hydro Aysen utility scale Note: Large Hydro are non-Aysen projects; small hydro are less than 20MW. Small Hydro utility scale Energy sources that are to the left of the energy price lines Biogas/ Landfill utility scale USD/MWh are competitive on a wholesale basis today. These now include biomass, biogas, geothermal, wind, and small hydro. Source: Bloomberg New Energy Finance, Chile LCOE NCRE LCOE Conventional LCOE Central Scenario SIC Energy Price SING Energy Price Analysis, 2011. NoN-coNveNtioNAl ReNewable eNeRgy economic law that the more you make something, the better iS AFFoRDABle FoR chile you become at it. Chile must put policies in place to achieve In 2011, small hydro, biomass, biogas, onshore wind, and maximum near-term deployment, and with it, maximum cost geothermal are already cost competitive with Chile’s mainstay reductions. technologies of large hydro and natural gas; solar is close In addition, to the extent that the cost of fossil fuels behind (see Figure 1.1). Furthermore, the levelised cost of a increases over the time period to 2030, renewable energy will new renewable energy power plant of all of the types studied become even more competitive on a relative basis. is less than the levelised cost of a new diesel power plant. By 2020, the analysis projects that the cost of wind will BARRieRS to NcRe DePloyMeNt PeRSiSt have become even more competitive (see Figure 1.2). The DeSPite eNeRgy MARket ReFoRMS most significant cost reductions in Chile will be in solar As a response to these challenges, Chile has put in place technologies. Also, by 2020, commercial and utility scale energy market reforms to increase the amount of NCRE in photovoltaic and solar thermal energy will be competitive the country, but the reforms were watered down and did not with new fossil thermal and large hydro. go far enough. In enacting Law 20.257 for the Development By 2030, most renewable technologies will be cheaper of Non-Conventional Renewable Energy in 2007, Chile than fossil thermal technologies, and some will compete to continued its leadership in energy policy and commendably be the least expensive energy alternatives in the country (see became the first and only country in Latin America to Figure 1.3).
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